Corporate Sales Stage 2, Due Diligence

Following our ‘April Acquisitions’ four stage summary published earlier this year for the benefit of prospective purchasers of businesses or shares in a company, during September Scott Richardson from our Corporate and Commercial Department will be concentrating on the Seller’s perspective and providing a four stage summary of the share or business sale process for anyone looking to sell a business or shares in a company.

After agreeing terms with the Purchaser, and hopefully entering into Heads of Terms under Stage 1, the next stage of the sale process is for the Seller to respond to the Purchaser’s due diligence enquiries on the target business or company, including providing documents in support to the Purchaser.

In order to try and streamline this part of the process, a Seller should as soon as placing the target company or business on the market for sale begin to collate and obtain important company or business documents that a prudent Purchaser is likely to require, including (but not limited to) the following:

• copies of key commercial contracts, such as terms and conditions of sale, supply agreements, distributor or partnership agreements;
• schedule of employees and copy of signed employment contracts (with employee personal details redacted from such documents for data protection purposes);
• accounting and tax records for the last three financial years;
• insurance policy documents, ensuring such policies are in date and are renewed if such policies lapse during the sale process;
• correspondence relating to any ongoing litigation or claims;
• details of the assets of the target business or company, usually in the form of an asset register;
• details of any intellectual property rights owned or used by the target business or company, including trade mark certificates and any licence agreements in place in this regard; and
• in the case of a share sale only, the target company statutory registers which should have been prepared and maintained, along with the articles of association of the company and any shareholders’ agreement in place (if applicable).

In addition to the legal due diligence, the Purchaser and their accountants are also likely to undertake more detailed financial due diligence on the target company or business, which the Seller’s or company accountants will need to assist with.

It is important that you as the Seller understand and comply with your data protection obligations when disclosing personal data to the Purchaser during this stage of the process, for example personal data relating to your employees, and disclosing the identity of key customers and suppliers to the Purchaser. It is sensible to provide redacted or anonymised details initially during this early stage of the process, with confirmation of such information to follow later in the process when both parties are more committed to proceeding with the sale.

Finally, as this stage is often the most time consuming with lots of documents to provide, early preparation in collating the likely documents a Purchaser will request, and providing them to the Purchaser in an accessible form (including appropriate document descriptions), is key to ensuring this stage is completed in a timely manner.

If you are considering selling a business or shares in a company, or require legal assistance with responding to any legal due diligence undertaken by a Purchaser on your target business or company, please contact Scott Richardson in our Corporate and Commercial Team by phone on 01329 227907 or by email on scott.richardson@glanvilles.co.uk.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.